Pages

Friday, 16 August 2013

Trickle down economics...separating self interest from good policy

I was on Facebook a few days ago when I noticed one of those annoying 'recommended pages' advertisements that look like your friends updates but are actually subtle advertising. I was surprised to see Gina Rinehart posting a link to her website with what looked like a blog entry entitled "Gina Rinehart is our least controversial celebrity".

I questioned whether even Ms Rinehart would promote herself so blatantly and in such a crude fashion. I think it is a fan site and I didn't bother reading it - I was much more interested in the comments under the post itself. What genuinely surprised me was how much support there was for Ms Rinehart on the entries. There was actually far less trolling than I would have imagined and a rather lively debate on whether the policies and views she espouses were good or bad for Australia and how economic policy should work.

Although it was not clearly stated, I was reading a lay discussion about the relative merits of 'trickle down economics'
Trickle down economics is a term which is often used in a negative sense to refer to the idea that if you stimulate the top end of town - e.g. the wealthy and the business community through incentives, tax cuts and other financial means they will be incentivised to expand their business operations. Although the immediate benefits in the short term go to business owners and those in the wealthier classes, the 'masses' also benefit as businesses are encouraged to hire people which results in job growth, wage growth and everyone benefits.

This is an argument that is seen much more in America than here in Australia and importantly - they have tried it. During the Regan era policies designed around trickle down economics were introduced. Here is a good summary from the Rachel Maddow show - the explanation starts around the 2 minute mark.

These sort of economic policies are promoted by conservatives all the time. However, it is often hard to separate the truth from self interest and this is where my interest in the Gina Rinehart story came in. A lot of her supporters were big believers in this trickle down economics type theory. They believed that if we looked after her and encouraged her to make money that it would provide security to her workers and would provide more jobs.

However, of course she and other business owners and high earning income individuals are going to say this. Do you like paying taxes? I am in the top tax bracket and trust me, if there was a way that I could pay less tax I would. Taxes suck for all of us. This does not mean that it is good economics.

Sometimes you get people who are willing to speak out on these issues. I thought Mark Cuban, a billionaire entrepreneur from the US explained it the best. Essentially what he says (ignore the broader discussion) is that taxes do not impact the decisions people make around investing and job creation (see around the 30 second mark below).

When we can't tell the difference between self interest and good policy then we all we are doing is disadvantaging ourselves
The danger in the discussion around trickle down economics is that many people can't tell the difference between what is self interest on the part of those who promote these sorts of policies such as Gina Rinehart and what is actually good policy. This is made more complicated by the constant references to 'tall poppy syndrome' in Australia. The fact that you can't say anything bad or impose requirements of those who are well off because that is just us being jealous.

One final point...

You may wonder why I have these views especially given this is a blog dedicated to making money and my own wealth journey. I have this belief that sometimes capitalism can be brutal - it is often a win-lose only system and that is fine and we are never going to be able to change that.

However I do not want to make my money in such a way which disadvantages those who do not understand the system or who can not work in it's confines as well as I can. I believe there is enough scope to share the wealth that we can generate in a more equitable manner than is often proposed by more 'true capitalists'

What are your views on the above issue? Am I suffering from tall poppy syndrome like so many others? Do you believe in trickle down economics? I would love to hear from you.